New York Markets After Hours

Analysts cut FedEx price targets

AlexandraScaggs

Analysts expect smaller gains from shares of FedEx Corp.
FDX, +0.30%
after the shipper warned investors its future profits would be lower than expected.

At least 10 analysts published notes after the company's warning, though none downgraded the stock. Five said they expect the shares to fetch less in trading over the next 12 to 18 months. The group is now looking to a meeting next month, where the company has said it will provide details on cost-cutting efforts.

The analysts who cut their price targets on the shares didn't do so dramatically. The biggest cut, from Credit Suisse analyst Christopher Ceraso, was just less than 7%. According to FactSet, the average analyst recommendation is that investors buy the shares, for which they assigned an estimated value averaging $101.74, 17% over the midmorning price of $86.88.

FedEx shares gained 32 cents, or 0.4%, early Wednesday, recouping some Tuesday losses. On Tuesday, FedEx shares fell 3.1% after the company announced its fiscal-first-quarter earnings and warned investors about its future profits. That helped pulled down the broader market, as the company's performance is considered a barometer of global growth.

"We believe that the magnitude [of the warning] offers a sobering assessment of the state of the global economy," wrote Donald Broughton, an analyst with Avondale Partners LLC. The firm is keeping its price target for the shares at $95 and remained neutral on them, with a rating of "market perform."

In Wednesday's notes, most analysts said they expect FedEx will announce changes intended to significantly reduce costs next month, but some weren't sure how far the company would be able to cut.

"A large cost reduction is necessary to support a meaningful move up in the stock," wrote Thomas Wadewitz, analyst with J.P. Morgan Chase & Co.

Jefferies analyst Peter Nesvold said investors are expecting a reduction in the company's work force and noted the company said it wasn't expecting wide layoffs.

"It's unclear if the network changes to be announced in October will be enough," he wrote.

Credit Suisse's Mr. Ceraso said he expects shares will be worth $95 over the next 12 months, 6.8% less than his previous target of $102. He said he thinks customers may continue to use lower-cost shipping from FedEx even if the global economy rebounds, which would pressure its profits.

"We suspect the effects will be long-lasting, as shippers...grow accustomed to the benefits of cheaper transportation," he wrote.

Still, Mr. Ceraso isn't the most bearish of the group. RBC Capital Markets analyst John Barnes kept his price target on the stock at $85, below where it was trading Tuesday, saying that, even after the steep cuts, FedEx's economic outlook was too optimistic. He recommended investors stay on the sidelines, keeping his rating at "sector perform."

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